Anderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2009] AATA 711
•21 September 2009
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2007/6178
General Administrative Division )
Re: James Anderson
Applicant
And: Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
Respondent
DECISION (CORRIGENDUM) [2009] AATA 711
TribunalMr R P Handley, Deputy President
Date9 December 2009
PlaceSydney
WHEREAS:
The Tribunal published its Decision in this matter on 21 September 2009.
The Tribunal wishes to amend the Decision to rectify an error.
Now the Tribunal therefore orders that the Decision of the Tribunal should be amended to reflect the following amendment to Paragraph 11 of the decision:
On 19 December 2007, Mr Anderson applied to the AAT for a review of the SSAT’s decision. I understand that there followed a series of preliminary conferences and that this has been the principal cause of the delay in bringing the matter to hearing.
…………[sgd]………
Mr R P Handley
Deputy President
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 711
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2007/6178
GENERAL ADMINISTRATIVE DIVISION )
ReJames ANDERSON
Applicant
AndSecretary, Department of Families, Housing, Community Services and Indigenous Affairs
Respondent
DECISION
TribunalMr R P Handley, Deputy President
Date21 September 2009
PlaceSydney
Decision The decision under review is set aside and the matter is remitted to the Respondent with the direction that Mr Anderson’s entitlement to age pension for the period 24 June 2004 to 17 October 2005 be recalculated on the basis that his interest in the Yeppoon property should be valued at $70,000 as at 29 July 2004.
...................[sgd]...........................
Mr R P Handley
Deputy President
CATCHWORDS
SOCIAL SECURITY - age pension – assets test – fractional interest in real property – unrealisable asset – market value – underlying value – decision under review set aside
…
RELEVANT ACT
Social Security Act 1991 (Cth)
…
CITATIONS
Re Ralph and Repatriation Commission [2006] AATA 258
Re SRAAAA and Secretary, Department of Family and Community Services [2003] AATA 360
Re Hayes and Repatriation Commission [2006] AATA 201
…
REASONS FOR DECISION
| 21 September 2009 | Mr R P Handley, Deputy President |
Mr Anderson has applied to the Administrative Appeals Tribunal (the AAT) for the review of a decision of the Social Security Appeals Tribunal (SSAT) dated 29 November 2007. The SSAT affirmed a decision made by a Centrelink authorised review officer (ARO) that Mr Anderson was not eligible for payment of age pension because the value of his assets exceeded the allowable asset limit provided for in the Social Security Act 1991 (the Act).
background
Mr Anderson controls the Jim Anderson Family Trust (the Trust) which owns a half interest in land at Yeppoon in Queensland.
Mr Anderson claimed and was granted an age pension from 24 June 2004. On 29 July 2004, the Australian Valuation Office (AVO) valued the share of the property held by Mr Anderson for the Trust at $125,000 and he was paid a reduced rate of pension as a result.
Mr Anderson applied to the SSAT for a review of Centrelink’s decision to reduce the amount of age pension payable due to the value of assets under his control and, on 26 September 2005, the SSAT affirmed this decision. Mr Anderson then applied to the AAT for a review of the SSAT decision.
On 17 July 2006, the AAT, comprising Senior Member Allen, set aside the SSAT decision and remitted the decision to the Respondent for reconsideration. SM Allen followed the course adopted in an earlier AAT decision, Re Ralph and Repatriation Commission [2006] AATA 258 (Ralph). In that case, at [24], Deputy President Hack recognised that in the case of an undivided moiety, while the relevant interest:
… is capable of being disposed of by sale … it must be accepted that the market is not the same as the market that might exist for the sale and purchase of the whole property or similar properties.
At [26] to [27] DP Hack said:
26.Moreover it seems to me to be unlikely that an investor would be interested in acquiring the relevant interest however that is a possibility that would need to be considered. It is possible to conceive of an investor who was prepared to acquire the relevant interest in the knowledge that an application could be made for the appointment of statutory trustees for sale pursuant to s 38 of the Property Law Act 1974 (Qld.) and its equivalent in other States and Territories. But an application of that type will involve significant expenditure on legal costs and on the costs of the trustees in effecting a sale. The costs involved are such that I would have thought that any investor acquiring the relevant interest would discount the value determined by application of the proportionate approach to take account of the costs of realisation.
27.In the present case the valuer does not appear to have considered these issues. Instead a proportionate approach has been adopted. In fairness to the valuer he appears to have adopted this approach at the suggestion of the Department. But simply adopting the proportionate approach appears to me to be an erroneous approach since it does not consider the proper measure of value, market value. It must be within the experience of valuers to undertake a valuation of an undivided moiety. I assume that it is required from time to time, for example, in the context of bankruptcy administrations where one of two co-owners is bankrupt and the question arises of the value of the interest of the trustee in the bankruptcy.
In March 2005, Mr Anderson also applied to be paid an age pension under the financial hardship provisions, asking that the value of the Yeppoon property be disregarded on the ground that it was unrealisable because the owners of the other half share of the property, Mr and Mrs Hooper, who are former neighbours of Mr Anderson's, were unwilling to sell their share of the property or subdivide it. While Centrelink agreed the property was unrealisable, it rejected Mr Anderson’s application because he did not satisfy the test for severe financial hardship. This decision was also affirmed by the SSAT on 26 September 2005.
On 3 May 2006, the AVO provided a revised value for the whole property of $1,600,000, attributing the increase in value to a rezoning of the land on 17 October 2005 and, from 23 May 2006, Mr Anderson’s pension was cancelled because the value of his assets exceeded the allowable limit. Centrelink advised Mr Anderson that his share of the property had been found to be $800,000, less a 15 percent discount in accordance with the AAT decision.
On 10 October 2006, the AVO provided a further valuation for the whole of the Yeppoon property. There then followed further valuations and reviews, culminating in an AVO valuation provided to Centrelink on 28 September 2007, to which a discount of 20 percent was applied – 10 percent in recognition of Mr Anderson’s fractional interest and 10 percent in respect of a proposed road that would pass through the property. The whole market value of the property was assessed at $4,106,000, less 20 percent, equals $3,285,352, rounded to $3,300,000 “for practical real estate purposes”. Mr Anderson’s half interest was therefore valued at $1,650,000.
Mr Anderson sought a review of this decision by both an ARO, who affirmed the decision, and also the SSAT. On 29 November 2007, the SSAT also affirmed the decision, stating at [47] to [48] of its reasons:
[47]The Tribunal considers that an assessment of the current market value of an asset best reflects an applicant’s financial position for social security purposes. The Act does not state the methodology to be employed in order to ascertain the value of a person’s assets. As discussed above, the determination of market value requires professional judgement and skills, and in the absence of acceptable alternative methodologies, the Tribunal accepts the AVO valuation of 31 May 2007, noting that it takes into account not only Mr Anderson’s undivided 50% share of the property (and discounts it accordingly), but also the proposed road through the property. Therefore this valuation is the best available evidence of the market value of Mr Anderson’s 50% share of the property, this being $1,650,000.
[48]Mr Anderson was a single homeowner at the time of making his claim. As his assets exceeded the allowable asset limit, his rate of pension was calculated as nil under Module G (the Assets test) of section 1064. Therefore Mr Anderson’s age pension was correctly cancelled and he is ineligible for payment of age pension.
On 19 December 2007, Mr Anderson applied to the AAT for a review of the SSAT’s decision. I understand that there followed a serious of preliminary conferences and that this has been the principal cause of the delay in bringing the matter to hearing.
issues
Mr Anderson has asked that the hearing be limited to a review of his interest in the Yeppoon land in the period 24 June 2004 (the date of commencement of payment of a partial age pension) to 17 October 2005 (the date of rezoning of the land from ‘Rural’ to ‘Residential R1’, upon the commencement of the then Livingstone Shire Integrated Town Planning Scheme).
Mr Anderson contends, first, that Centrelink has continued to fail to apply the correct methodology for the valuation of a moiety in land as required by the AAT’s decision in Ralph, with the consequence that Centrelink has failed to determine the proper market value of his interest in the Yeppoon property. Centrelink rejects this and contends that the valuation reports it relies on apply the reasoning in Ralph.
Secondly, Mr Anderson contends that because his interest in the property is unrealisable, it has no market value. Centrelink rejects this and contends that the property has value for purposes of the application of the assets test. It contends that even if an asset is found to be ‘unrealisable’, this does not mean that value should not be attributed to that asset.
In my view, these issues are most appropriately considered in the reverse order.
Should value be atributed to the Yeppoon property?
Mr Anderson referred to the definition of an ‘unrealisable asset’ in s 11 of the Act. Section 11(1) provides that unless the contrary intention appears, ‘unrealisable asset’ has the meaning given by ss 11(12) and 11(13). These subsections state:
Unrealisable asset
(12) An asset of a person is an unrealisable asset if:
(a) the person cannot sell or realise the asset; and
(b) the person cannot use the asset as a security for borrowing.
(13)For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:
(a) the person could not reasonably be expected to sell or realise the asset; and
(b) the person could not reasonably be expected to use the asset as a security for borrowing.
Mr Anderson pointed to the decision by the SSAT dated 26 September 2005 where the SSAT found his interest in the Yeppoon property to be an unrealisable asset. However, the SSAT rejected Mr Anderson’s claim for a pension under the financial hardship rules in Division 3 of the Act on the ground that it was not satisfied that he would suffer severe financial hardship if s 1129 did not apply to him, as required by s 1129(1)(e).
Mr Anderson said it is an oxymoronic argument to contend that an unrealisable asset has a market value. If an asset is unrealisable, it cannot be converted into money and cannot have a market value. He said the extended definition in s 11(13) deems his interest in the land to be unrealisable.
Ms Schuster, for the Respondent, submitted that s 1129(1) makes specific provision for situations where a person has an unrealisable asset which, nevertheless, has value in terms of the application of the assets test. Where a person has such an asset and is able to satisfy the Respondent that he/she would suffer severe financial hardship if the section did not apply, then the Respondent can disregard the value of the unrealisable asset in working out the pension rate payable to the person. Ms Schuster said that if an unrealisable asset had no value, there would be no reason for such provisions – they would have no work to do.
In my view, ss 11(12) and (13) need to be read in the context of the Act as a whole – a context that includes the specific provisions in s 1129 addressing the problem of severe financial hardship. The Act is beneficial legislation and the purpose or object of Division 3 appears to be to ensure that those who are in severe financial hardship, but who have unrealisable assets that, nevertheless, have value in terms of the application of the assets test, should be entitled to receive social security benefits.
This is supported by the cases to which Ms Schuster referred me – Re SRAAAA and Secretary, Department of Family and Community Services [2003] AATA 360, and Re Hayes and Repatriation Commission [2006] AATA 201 – in so far as those cases recognise that despite the unrealisability of an asset, it can still be said to have value – albeit that it is not a value that is readily realisable.
In the case of the Yeppoon property, it also seems likely to me that the property will, at some stage, be sold, as Mr Anderson’s oral evidence about negotiations for a sale prior to the commencement of the October 2007 global financial crisis appears to anticipate. He indicated that there have been several occasions when offers have been made for the property, in respect of which negotiations have failed because the owners of the other half share in the property, Mr and Mrs Hooper, have unrealistic expectations about the sale price that can be achieved, over and above professional advice received. Thus, I do not agree the property has no value even if, at a particular date, there is no willing purchaser.
Thus, I reject Mr Anderson’s contention that the Yeppoon property has no value.
The Valuation of the Yeppoon Property
As stated above, Mr Anderson contends that Centrelink has continued to fail to apply the correct methodology for the valuation of his interest in the Yeppoon property in accordance with the AAT’s decision in Ralph, with the consequence that Centrelink has failed to determine the proper market value of his interest.
It appears that following the publication of the AAT’s decision on 17 July 2006, the value of the Yeppoon property was reassessed in response and, on 25 September 2006, a 15 percent discount was applied to the valuation of $125,000 (50 percent of the valuation of the whole property of $250,000) attributed to Mr Anderson’s interest as at 29 July 2004 in recognition of the fact that his interest was an undivided moiety. The AVO’s Senior Valuer for the Central Queensland region, Mark Bishenden, who made the valuation in 2004 (and also the later valuations) gave oral evidence to this effect at the hearing. He said at 29 July 2004, when he first valued the property, he was unaware of any proposal for a strategic road passing through the property. He conceded that the discount of 15 percent he applied in his revised valuation was a purely subjective one and he is unaware of any market evidence to support an assessment of the appropriate level of discount.
Mr Bishenden said he arrived at the figure of 15 percent (compared to the 10 percent discount applied in respect of Mr Anderson’s fractional interest in revising later valuations) because there was less potential for the land, which was zoned as Rural B at that time and incapable of subdivision, compared with its potential after being rezoned to Residential R1 on 17 October 2005. Because of the rezoning, the land could be subdivided into residential lots and was a more attractive proposition for a prospective purchaser.
Mr Anderson asked Mr Bishenden about the value of $180,000 attributed to the land by Queensland State valuers for rating and land tax purposes. Mr Bishenden said such valuations tend to be on the “conservative side”. His valuation of the whole property (which was what he was originally asked to value) at $250,000 on 29 July 2004, was based on comparable sales evidence.
There are two aspects of this issue: first, what was the value of the whole Yeppoon property on 29 July 2004 and, secondly, what was an appropriate discount to apply to the value of Mr Anderson’s half interest in the property? With regard to the first question, the evidence before the Tribunal as to the value of the property as at 29 July 2004 comprises (1) Mr Bishenden’s valuation of $250,000 for the whole property, (2) a valuation of Mr Anderson’s half share in the property dated 14 November 2006 prepared by Kevin McDonald, a registered valuer, for Mr Anderson valuing his share at $75,000, and (3) a Queensland State valuation of the whole property for rating and land tax purposes of $180,000. Mr Bishenden’s opinion was that the Queensland State valuation was “on the conservative side”, whereas his valuation was by reference to comparable sales in the area.
Mr McDonald’s valuation took into account the nature of the land and the potential for future gain. He noted that the incentive for a potential purchaser was restricted by the intentions of the owners of the other half share in the property, who informed Mr McDonald that they were not prepared to provide any contribution towards the cost of any future division of the property into two separate holdings. Any prudent purchaser of Mr Anderson’s half share would be aware of these circumstances. Mr McDonald set out what he referred to as a “minimum allowance for risk of realisation and profit”, increasing from 25 percent for a selling period of six months to 70 percent for three years, which he said should be deducted from the gross selling price after selling expenses had been deducted. Unfortunately, it is not clear to me exactly how Mr McDonald arrived at his valuation of $75,000 for Mr Anderson’s half share.
As stated above, Mr Bishenden discounted the value of the property by 15 percent in recognition of Mr Anderson’s fractional interest. Mr Bishenden acknowledged that the discount he applied was purely subjective and was not based on market evidence. There is also no evidence as to the costs of a subdivision if it was necessary to make an application for the appointment of statutory trustees under the Property Law Act 1974 (Qld) referred to by DP Hack in Ralph, quoted above. My own, admittedly untutored, view is that with a property of relatively low value, the discount required to attract a potential purchaser would need to be significant – otherwise, one might anticipate that it would be simpler and easier for the potential purchaser to buy elsewhere.
Because there is very little objective evidence on which to make a decision, and in view of the fact that the Act is beneficial legislation, I am inclined to take a conservative approach to the valuation Mr Anderson’s share in the Yeppoon property and rely on the valuation of $180,000 attributed to the whole property by the Queensland State valuers. Mr Anderson’s half share would therefore equate to $90,000, less a discount in recognition of his interest being an undivided share with all the attendant difficulties in attracting a prospective purchaser. Doing the best I can, it would seem fair to allow a discount of $20,000 (this was a figure mentioned in relation to the costs of subdivision), and, accordingly, value Mr Anderson’s interest in the Yeppoon property as at 29 July 2004 at $70,000 for the purpose of the application of the assets test.
The decision under review is therefore set aside and the matter is remitted to the Respondent with the direction that Mr Anderson’s entitlement to age pension for the period 24 June 2004 to 17 October 2005 be recalculated on the basis that his interest in the Yeppoon property should be valued at $70,000 as at 29 July 2004.
I certify that the 32 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President.
Signed: .........................[sgd].................................................
A Veness, Associate
Date of Hearing: 11 September 2009
Date of Decision: 21 September 2009
Applicant representative: Self-represented
Respondent representative: Ms H Schuster, Centrelink Legal Services
0
3
0